Logistics and Bilateral Exports in Developing Countries: A Multiplicative Form Estimation of the Logistics Augmented Gravity Equation

This paper argues for the need to improve logistics and trade infrastructure in developing countries in order to increase trade flows. Based on a multiplicative form gravity regression framework, this paper assesses the impact of logistics on bilateral exports in developing countries. The logistics augmented gravity model estimations incorporating heterogeneity indicate that logistics impacts positively on bilateral trade in developing countries. With regards to the individual measures of logistics, the ease and affordability of shipping and timeliness had the greatest and least impact on bilateral exports respectively. Domestic logistics costs were however not significant in explaining bilateral trade flows. The evidence also shows asymmetries within country groups. Logistics at the destination was more important for primary commodity exports, at the origin more important for the export of oil/gas and manufactures and in developing countries more important for exports to high income countries. The evidence also indicates customs efficiency and timeliness as more important for trade in low income countries. Other explanatory variables such as economic size, distance, tariffs and country characteristics were found to be important determinants of trade involving developing countries.